Top South African economist shares bad news about interest rate cuts in January

Investec chief economist Annabel Bishop said the Reserve Bank’s Monetary Policy Committee (MPC) is unlikely to cut South Africa’s interest rates at its January meeting.

Despite a supportive environment, a January cut would fall too close to November’s 25-basis-point reduction, and the MPC has expressed caution amid elevated uncertainty.

In addition, the committee is seeking to suppress South Africa’s inflation environment and, over the medium term, embed the inflation rate at its new 3% target.

In the current cutting cycle, which started in September 2024, South Africa has seen 150 basis points worth of cuts. In the preceding hiking cycle, the MPC implemented 475 basis points worth of hikes.

The latest cut came in November 2025, when an improved inflation outlook, a stronger rand and a lower oil price assumption encouraged the MPC to cut rates by 25 basis points.

This brought the repo rate to 6.75% and the prime lending rate to 10.25%, the lowest levels in years.

Many of the same factors that contributed to this decision have persisted into the new year.

The rand has continued to strengthen against the US dollar and other major currencies in 2026, fuel prices dropped in January and are expected to do the same in February, and risks to the inflation outlook appear balanced. 

In addition, Bishop explained that the repo rate currently stands at 325 basis points above November’s inflation rate.

Considering that CPI inflation is expected to fall below 3.0% in the second quarter of 2026, “the high real interest rate in South Africa supports further interest rate cuts”.

“Indeed, without an additional 50 basis point cut this year – expected to be spread over two meetings – the real interest rate will rise further, nearing 4.00% mid-year,” Bishop said. 

Therefore, the stage is set for the Reserve Bank to continue lowering interest rates this year. However, Bishop does not expect the first cut of the year to be announced at the MPC’s upcoming January meeting.

The chart below shows South Africa’s inflation and interest rates from January 2021 to December 2025.

High and hawkish

Despite the supportive environment, Bishop explained that the Reserve Bank has been very cautious on easing monetary policy, preferring a tight stance.

The MPC previously noted that, “we are in a very uncertain environment and it’s important we move with caution”.

Therefore, considering interest rates were cut as recently as November, Bishop does not expect another cut to be announced as soon as January, with the MPC set to meet on Thursday, 29 January 2026.

She explained that the MPC is seeking to suppress South Africa’s inflation environment and, over the medium term, embed the inflation rate at the new target of 3.0%.

The Reserve Bank’s quarterly projection model shows South Africa’s repo rate will fall to 5.75% by the end of 2028. 

However, Bishop pointed out that the steady state for the repo rate is seen at 5.50%.

This implies that the repo rate must be cut by another 125 basis points to reach this steady-state level, which Bishop expects to be reached in 2029.

“However, much depends on the inflation outlook, and environment, which currently is expected to become embedded at the 3.0% y/y target over the medium term, allowing for a sustained lower interest rate environment,” she said.

If a cut is not announced in January, as Bishop suspects, she expects the next cut to be announced in March 2025.

She projects that the MPC will implement another 25 basis point drop in March as CPI inflation is expected to fall to 3.0% in February.

Bishop noted that quicker-than-expected growth is a risk to the inflation outlook and will, therefore, reduce the chance of interest rate cuts. 

“With consumer spending and not fixed investment driving growth last year, the inflation and interest rate outlook would be at risk if this persists,” she warned.